What Are Unilateral Contracts?
Unilateral contracts are one of a number of different types of contracts recognised under English law. They are particularly important in the context of standard form contracts.
A unilateral contract is one made in exchange for the performance of some act. A typical scenario is a reward for information or the return of a lost item (eg "Lost dog $100 reward".) The unilaterality in a unilateral contract refers to the promise of the offeror being contingent on the performance of a task by the offeree.
The counter-party will have no rights against the promisor until the offeree performs the act . This makes unilateral contracts different from other contracts with a bilateral nature. In a bilateral contract, both the promisor and the promise provide consideration in the form of a promise. If one party fails to provide consideration to the other, this constitutes a breach of contract.
In the case of a unilateral contract, the offeree carries out the consideration by performing the requested act. However, if the promisor does not seek to enforce the offeree’s performance, the unilateral contract is unenforceable.
It is a necessary condition to the formation of a unilateral contract that the offeree receives knowledge of the unilateral contract.
Examples of Unilateral Contracts
One common instance of a unilateral contract is an offer of reward. A good example is the Lost Dog Pizza Company in Phoenix, a delivery restaurant that is open until 3 a.m., which offered a $500 reward in 2010 if someone could find the owner’s lost French bulldog, which had strayed in the neighborhood. The restaurant received 64 calls on the "hotline" it had set up for commencement of the search and paid the reward of $500 to a Phoenix couple who found the dog. The restaurant also received so many other tips in its efforts to find the pooch that the company offered a second $500 reward for the same dog.
This shows one of the benefits of this type of offer: Such an offer provides an incentive for people to hope that your lost dog is found, which is better than simply seeking help without any real motivation, such as looking for the dog for a reward in social media outlets.
Another common type of unilateral contract is life insurance. When someone purchases insurance, they receive a policy in the mail outlining some of the details of coverage. The person pays a premium in hopes that the policy will pay out following their death. All of the risk is borne by the insurance company. If the insurer’s risk turns out to be less than the overall amount of premiums it would receive versus likely payouts for death, there is a profit to be made by the insurance company. If it turns out to be more, it would be as if the policyholder didn’t purchase insurance at all and simply "bet" on their own death in order to reap the benefits of the terms of the insurance policy. They would get no money back if they were still alive years later.
Potential Issues in Unilateral Contracts
As with all contracts, to form a legally enforceable unilateral contract, the parties must share a mutual intention to contract. A unilateral contract does not require any consideration or a return promise by the other party.
A unilateral contract contains two essential elements:
1. An offer. A unilateral contract is created by an offer that a specific act will be performed in exchange for a specific promise (if performance of the act is offered in exchange for a promise, it is actually a bilateral contract). The offeror can promise that he will pay for performance of the act or perform the act himself, provided the offeree performs the act.
2. Performance. To accept the offer, the offeree must perform the contracted act. Once the act is completed, the acceptance is effective and the contract is fulfilled.
Although there is no acceptance or promise to perform under a unilateral contract, the actual performance of the requested act constitutes the acceptance of an offer. An offer can become revocable if the parties have not entered into a bilateral contract and the offeree does not begin the performance of the requested act within a reasonable time and before the offeror moves to perform the act requested. If the act offered is to be performed over a period of time, the unilateral contract remains binding until the act is fulfilled, no matter how much time has passed.
It is not always clear whether the conduct is sufficiently overt to be considered acceptance. In determining if a person’s conduct constitutes acceptance of an offer to enter a unilateral contract, courts consider the intent of the party who performed the act. If it was unreasonable for the offeree to believe that the unrequested act was in exchange for the benefit conferred by the offeror, the contract is not formed.
Legally Binding Nature of Unilateral Contracts
In most situations, unilateral contracts are legally enforceable. The primary enforcement mechanism of unilateral contracts involves determining the set of activities required of the party receiving the service. Provided they meet the requirements of consideration-namely that the promisee perform the action granted to them in exchange for the promisee’s performance of the act-then any unilateral contract is legally enforceable. Moreover, in the case of contract breaches, the aggrieved party has a right to sue for substantial damages.
That said, there are some exceptions to the legal enforceability of unilateral contracts. A common question involves whether a unilateral contract is void if the offeror is found to have had no intention of completing the contract (such as if he is discovered to have been lying or not serious about his intentions). In this case, the result hinges on whether the parties could reasonably believe that the contract was binding. The test often involves determining the specific words and actions involved in creating the unilateral contract. For example, consider an agreement provided on a television show, whereby the host promises $10,000 to the first viewer who can correctly solve a problem posed by the host. If none of the contestants are able to solve the problem, there is no chance for the contract to fall through. However, had the host been lying, such as by purposely withholding information needed for the solution from the contestants, then the contract would be rendered void.
Unilateral Contract vs. Bilateral Contract
A unilateral contract and bilateral contract might seem like they’re one and the same, but their differences are stark. The two contracts have some overlap but have major distinctions in terms of the type of obligations they create and how enforceable they are in a legal sense. With a unilateral contract, there is a promise that only exists on the part of one person. A contract is only formed when the conditions of the promise are satisfied. For example, Promise A says that if you deliver this painting, PM, then I will pay you X amount. If you do not deliver me the painting, the deal fails to exist. The entire contract lies upon the delivery of the painting. If the seller has delivered the painting and then by chance the buyer is unable to pay the agreed price for the painting due to unforeseen financial circumstances, the buyer cannot use this as an excuse to avoid paying for the painting. Because the offer is accepted through the performance of the act, the promise is binding and enforceable by law. It is only after the buyer’s promise of legal tender is realized in exchange for the item in question that the buyer can be said to have breached the contract. A bilateral contract on the other hand is a mutual contract, something that is legally binding as soon as an agreement is made between two parties. There is no need for the fulfilment of a condition. Once the parties agree to an arrangement , it becomes enforceable. Let’s say that Frank is a software programmer and Sarah is a food delivery service. Sarah’s professional development team has approached Frank to develop an app for her business. Frank is absolutely ecstatic about the prospect and says he will get to work as soon as she pays him an initial down payment for the job. Sarah agrees to make these payments, leading both parties to each undertake respective actions that fulfil the necessary obligations for the contract to exist. Frank has committed to creating the app, and Sarah has thus committed herself to paying him an initial deposit. What is important to note is that if Bilateral Contract A does not fulfil the actions necessary to fulfil her side of the deal, her breach is not a binding legal offence. Unless the contract has a limit date, it remains in force until the conditions have been met. A condition of the contract suggests that the contract is pending or a precursor to a larger deal, not satisfied until a future time. In both types of contracts, an enforceable legal right exists. However, the two could be headed to court in different scenarios. In the above situation, Frank has not yet delivered the app to Sarah, while she has agreed in writing to a contract with the programmer. If Sarah backs out of the deal, Frank would likely not have any protection through the Courts. A unilateral contract is unquestionably more fragile than a bilateral contract, which is often unspoken between all the active parties.
Unilateral Contracts – Real-life Cases
When examining the dynamics and implications of unilateral contracts, an insightful approach is to analyze real-life case studies. These cases, decided in state and federal courts, provide valuable insights into the binding nature of these contracts, the resealing of offers, the requirements for revocation, and the impact of specifying beneficiaries in agreement with third parties.
One case in particular, Kansas City v. Byrum, No. SC 92785, 2002 WL 1498620 (Mo. S.Ct. 2002), gives an exceptional overview of the legal implications involved with the unilateral aspect of insurance contracts. In this specific case, the insurance covered not only the employee but also a contractual third party. This was concerning the dog park in Kansas. A daily fee of $.50 was in play but was not being paid by all who attended for some time. To solve the problem, the contract was created with a reward offered for those who paid. If payment was made after the contract was formed, the $20 reward was provided.
When one of the owners of a dog attended the park and did not pay the $.50 fee, he was fined and brought to court. The Court ruled that there was no contract between the two parties. It was further found that there had been no offer and as such, no acceptance. The Court ruled that the insurance was illegal as it only partially protected the dog park. The decision of the Court was reaffirmed even though the city argued that the creation of the insurance policy would allow everyone to participate in the $7,000 benefit. The Court stated again that the insurance policy was an illegal contract as it was offered on the basis that it did not exist.
Another interesting case that provides an overview of the unilateral form of contract is Smith v. Hughes, [1871] LR 6 QB 597. In this case, the plaintiff and defendant met and discussed the purchase of new oats. The plaintiff told the defendant that he wanted only the best quality when they asked to see the sample. The defendant told the plaintiff that he could bring a sample to sheave. Once at the sheaving location, the plaintiff examined the oats and after narrowing down what he wanted the trade was finalized. There was no sample left on site. The plaintiff then paid £45 for his order. Once the oats were delivered, the plaintiff discovered that there were old seeds mixed in. He filed a lawsuit against the defendant.
The Court found that there was no evidence that anything other than new oats were ordered. As such, the plaintiff lost his claim for any damages that occurred. The declaration of a unilateral contract by the Court shows the importance of detailed provisions when it comes to creating a contract. The unilateral contract stands up if it contains only the offer and the consideration; however, it can be very limited and therefore not practical.
Conclusions and Practical Considerations
In conclusion, the basic distinguishing feature of a unilateral contract is that it is the performance of the act which binds the offeror, as opposed to acceptance by the offeree. The latter may nevertheless still be required where the offeror withholds the payment for the act until acceptance. However, the performance of the act alone will serve as acceptance where the offeror has clearly waived the need for a formal acceptance. Unilateral contracts are commonly used in everyday transactions , such as rewards or free offer schemes. Businesses must be very careful when drafting unilateral contracts. The offer must be clear and all terms must be followed precisely if they wish the offer to be effective and to successfully limit their liability. The law on unilateral contracts holds a party to either the bargain (if binding) or its promise (if not binding), hence there is a strong policy behind the creation of them and the validity of unilateral agreements.